The Federal Trade Commission met on June 29 and 30 of this year to discuss the emergence of B2B e-commerce in the global marketplace, bringing together a panel of experts on B2B commerce, including B2B executives and an array of market analysts and watchful investors. Industry participants were selected because of their roles in helping to define electronic commerce.

Susan DeSanti, FTC director of policy planning and head spokesperson for the panel that met for eight weeks preceding the June meetings, said, "B2B marketplaces have the potential to generate remarkable savings. Those savings can enable businesses to operate more efficiently and provide lower prices too, along with greater innovation thus benefiting consumers. Antitrust policy takes those savings into account so it is important to understand that they do happen. This is especially true in those cases where savings arise because of the new technology underlying B2B marketplaces, and this can make markets more, not less competitive. We need to develop the best understanding possible of how to answer the long-standing traditional antitrust questions in the context of this new technology."

Steve Kafka, an analyst with Forrester Research who spoke at the conference, warns of possible accountability problems with online supply side services. At some point, the question arises as to who the actual provider of services is and whether they are accredited to sell these services and commodities. Questions surface regarding notions such as dispute resolution, online due diligence and online risk management.

Insiders wonder whether policy directives will go the way of regulation, turning the B2B marketplace into a public utility for information and procurement resources, or if free market philosophy will foster a competitive environment leading to technical innovation and revolutionary means of production.

Complex Economy

Tim Muris, counselor at law firm Howrey & Simon, who attended the conference, feels market forces should be the driver. "What we've seen here is that there is little law and the economies are very complex. What we don't want to see at the federal level is a cheap consent agreement because the first steps the government takes are going to have a profound impact. Since we don't know what that impact is and the history of regulation has been one of unintended consequences, caution in exercising restrictions is very much in order."

DeSanti pointed out the concerns that are raised by these electronic markets are the same concerns that have been raised by traditional joint ventures and mergers. One of the questions she asks is, "are there any deals that require all of the suppliers to use that marketplace exclusively?"

The conference also examined the Department of Justice action against the airline industry for passively colluding through the Airline Tariff Publishers electronic market in the early 1990s. In that case, the airlines were basing future prices on other airlines' future pricing. After the action, the airlines signed a consent agreement not to share future prices. The case drew a line between commodities options, which are hedges against wild fluctuations in pricing, and the process of price signaling through electronic markets. DeSanti said that if companies wanted to exchange information about future prices they would have to convince a skeptical FTC that it would somehow benefit consumers.

Another question that people are asking about B2B markets is whether they will converge in a process called a network effect. The more people that can communicate through a single network like the telephone, the more valuable it becomes to everyone. Similarly, in B2B markets, the more buyers and suppliers you can reach through a single exchange, the more valuable it becomes. However, sometimes the effect is so powerful you end up with only one network or market. DeSanti said that the main concern with a single network is that if one competitor is being excluded from the market, that could raise their costs since the market might be the most efficient place to get transactions done.

Traditionally, the government has addressed this issue by creating common carriers in the phone and rail industry, which are obligated to provide the same service to everyone. But DeSanti notes, "No one is looking at common carrier regulation at this point. Part of the reason for that is there are no factual circumstances that present that kind of issue. There are a number of people who don't think that will happen. One of the reasons that some people are skeptical is that they believe the B2B marketplaces will develop interoperability. For example, we used to have just AT&T, and now we have AT&T, MCI and Sprint. What makes that feasible is interoperability. If the B2B markets evolve in that direction, then the theory is that regulation will not be necessary."

The FTC's involvement signals a recognition of just how large an effect e-commerce technologies will have on the financial frontier and this practical style of cautious information gathering before making policy is welcomed if the intention is to make B2B enterprise more valuable for collective interests. DeSanti explained, "What we were hearing at the workshop is that we are just at the bottom half of the first inning. There are some B2B markets that are operating, and many more that are in the planning stages. It is important not to act prematurely in an area that is very much in its infancy."